“I don’t buy the extreme arguments on either side of the where-is-natural-gas-headed debate. I do see signs, however, that support my out-of-consensus view. Views on the natural gas market tend to extremes. Some analysts believe natural gas will continue to trade under USD4 per MMBtu for a prolonged period, while others will tell you it’s headed back above USD6, or even USD8, within the next six months.

The bearish outlook seems to be most prevalent among industry participants. For example, consider this passage from the Beige Book:

The demand for oil services and drilling equipment continues to shrink with the rig count. Over the past six weeks the number of U.S. working rigs is down by 300 or 22%. Texas, New Mexico and Louisiana all had significant losses, especially Texas, which lost 168 rigs – over half the national total. Respondents indicated that a number of gas wells drilled in nonconventional shale are cased and will be re-entered when natural gas prices improve and will give a quick and large boost to supplies.

The comments published in the Beige Book typically come from discussions among Fed officials and industry participants. Completing a gas well involves lining the well with a heavy pipe known as casing. This quote suggests that some producers have completed gas wells in shale plays but haven’t put those wells into production because they’re waiting for a recovery in natural gas prices.

The implication is that this would keep natural gas prices lower for longer. As soon as prices tick higher, companies will put those new shale wells into production, quickly swamping demand with excess supplies.

The consensus among panelists at an early April EIA conference was that U.S. gas prices will average in the USD4 to USD6 per MMBtu range for years to come. Their rationale was fairly straightforward: Strong production growth from these vast deposits of U.S. shale gas will be enough to keep the U.S. in an oversupplied market for years to come.

This is true; the U.S. and Canada have plenty of gas to meet demand for decades locked up in prolific unconventional plays. However, I do maintain my out-of-consensus take on gas prices.”

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